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Surging Energy Prices in Europe in the Aftermath of the War: How to Support the Vulnerable and Speed up the Transition Away from Fossil Fuels

Author

Listed:
  • Mr. Anil Ari
  • Mr. Nicolas Arregui
  • Mr. Simon Black
  • Oya Celasun
  • Ms. Dora M Iakova
  • Ms. Aiko Mineshima
  • Mr. Victor Mylonas
  • Ian W.H. Parry
  • Iulia Teodoru
  • Karlygash Zhunussova

Abstract

We estimate that the recent surge in international fossil fuel prices will raise European households’ cost of living in 2022 by close to 7 percent of consumption on average. Household burdens vary significantly across and within countries, but in most cases they are regressive. Policymakers have mostly responded to the shock with broad-based price-suppressing measures, including subsidies, tax reductions, and price controls. Going forward, the policy emphasis should shift rapidly towards allowing price signals to operate more freely and providing income relief to the vulnerable. The surge in energy prices will encourage energy conservation and investments in renewable energy, but the manyfold rise in natural gas prices could lead to a persistent switch towards coal. To ensure steady progress towards carbon emissions reduction goals, authorities could use the opportunity to strengthen carbon pricing when global fossil fuel prices decline in the future. Non-price incentives for investments in energy efficiency and renewable energy should also be enhanced, as envisaged in the RePowerEU plan.

Suggested Citation

  • Mr. Anil Ari & Mr. Nicolas Arregui & Mr. Simon Black & Oya Celasun & Ms. Dora M Iakova & Ms. Aiko Mineshima & Mr. Victor Mylonas & Ian W.H. Parry & Iulia Teodoru & Karlygash Zhunussova, 2022. "Surging Energy Prices in Europe in the Aftermath of the War: How to Support the Vulnerable and Speed up the Transition Away from Fossil Fuels," IMF Working Papers 2022/152, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2022/152
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    Citations

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    Cited by:

    1. Alkis Blanz & Ulrich Eydam & Maik Heinemann & Matthias Kalkuhl & Nikolaj Moretti, 2023. "Fiscal Policy and Energy Price Shocks," CEPA Discussion Papers 70, Center for Economic Policy Analysis.
    2. Eva M. Urbano & Konstantinos Kampouropoulos & Luis Romeral, 2023. "Energy Crisis in Europe: The European Union’s Objectives and Countries’ Policy Trends—New Transition Paths?," Energies, MDPI, vol. 16(16), pages 1-23, August.
    3. Turco, Enrico & Bazzana, Davide & Rizzati, Massimiliano & Ciola, Emanuele & Vergalli, Sergio, 2023. "Energy price shocks and stabilization policies in the MATRIX model," Energy Policy, Elsevier, vol. 177(C).
    4. Chan, Jenny & Diz, Sebastian & Kanngiesser, Derrick, 2022. "Energy Prices and Household Heterogeneity: Monetary Policy in a Gas-TANK," MPRA Paper 118543, University Library of Munich, Germany, revised Dec 2022.
    5. Yuru Guan & Jin Yan & Yuli Shan & Yannan Zhou & Ye Hang & Ruoqi Li & Yu Liu & Binyuan Liu & Qingyun Nie & Benedikt Bruckner & Kuishuang Feng & Klaus Hubacek, 2023. "Burden of the global energy price crisis on households," Nature Energy, Nature, vol. 8(3), pages 304-316, March.
    6. Omer Faruk Noyan & Muhammad Mahmudul Hasan & Nezih Pala, 2023. "A Global Review of the Hydrogen Energy Eco-System," Energies, MDPI, vol. 16(3), pages 1-22, February.
    7. Piotr Adamczyk, 2022. "Does the Volatility of Oil Price Affect the Structure of Employment? The Role of Exchange Rate Regime and Energy Import Dependency," Energies, MDPI, vol. 15(19), pages 1-10, September.
    8. Jacques Sapir, 2023. "The Macroeconomic Impact of the New Geopolitical Deal on the French Economy," Studies on Russian Economic Development, Springer, vol. 34(3), pages 308-319, June.
    9. Filip Tokarski & Mohammad Akbarpour & Scott Duke Kominers & Piotr Dworczak, 2028. "A market-design response to the European energy crisis," GRAPE Working Papers 81, GRAPE Group for Research in Applied Economics.
    10. Enisse Kharroubi & Frank Smets, 2023. "Energy shocks as Keynesian supply shocks: implications for fiscal policy," BIS Working Papers 1120, Bank for International Settlements.
    11. Zeeshan Anjum Memon & Dalila Mat Said & Mohammad Yusri Hassan & Hafiz Mudassir Munir & Faisal Alsaif & Sager Alsulamy, 2023. "Effective Deterministic Methodology for Enhanced Distribution Network Performance and Plug-in Electric Vehicles," Sustainability, MDPI, vol. 15(9), pages 1-37, April.
    12. Grafström, Jonas, 2023. "Spark of Transformation: The Impact of Electricity Prices on Europe's Industrial Landscape – Introducing the Green Industrial Location Attractiveness Index (GILAI)," Ratio Working Papers 369, The Ratio Institute.
    13. Sirin, Selahattin Murat & Camadan, Ercument & Erten, Ibrahim Etem & Zhang, Alex Hongliang, 2023. "Market failure or politics? Understanding the motives behind regulatory actions to address surging electricity prices," Energy Policy, Elsevier, vol. 180(C).
    14. Orsetta Causa & Emilia Soldani & Nhung Luu, 2023. "A cost-of-living squeeze? Distributional implications of rising inflation," Public Sector Economics, Institute of Public Finance, vol. 47(4), pages 431-460.
    15. Damira Keček, 2023. "The Effects of Rising Energy Prices on Inflation in Croatia," Energies, MDPI, vol. 16(4), pages 1-14, February.
    16. Philippe de Bekker & Sho Cremers & Sonam Norbu & David Flynn & Valentin Robu, 2023. "Improving the Efficiency of Renewable Energy Assets by Optimizing the Matching of Supply and Demand Using a Smart Battery Scheduling Algorithm," Energies, MDPI, vol. 16(5), pages 1-26, March.
    17. Szabolcs Nagy & Laszlo Molnar & Noemi Hajdu, 2023. "Understanding the Human Dimensions of the Intention to Use Renewable Energy in Hungary Applying an Extended Model of Theory of Planned Behaviour," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 25(64), pages 830-830, August.
    18. Rolim, Lilian & Marins, Nathalie, 2023. "Foreign price shocks and inflation targeting: Effects on income and inflation inequality," IPE Working Papers 207/2023, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    19. Farrell, Niall, 2023. "Equity effects of energy affordability interventions," Papers WP746, Economic and Social Research Institute (ESRI).

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